• Market Crumbs

Spending Collapses As Savings Rate Spikes

Image via Damir Spanic on Unsplash

Things have undoubtedly been tough over the last few months as a result of the coronavirus. Between the tens of millions of job losses and mandatory stay-at-home orders, most Americans have been affected.

Between job losses, a lack of things to spend money on and general pessimism over the state of the economy, American spending has collapsed while savings has soared.

U.S. consumer spending dropped by a record 13.6% in April, according to the U.S. Commerce Department. April's decline was worse than March's 6.9% decline, which at the time set a record for the largest monthly decline in U.S. consumer spending dating back to 1959. Spending on durable goods dropped 17.3% during April, while spending on non-durable goods and services dropped 16.2% and 12.2%, respectively.

Americans' incomes increased by 10.5% in April, fueled by government assistance through unemployment benefits and stimulus checks. Wages and salaries dropped by $740 billion last month, but the decline was offset by an annualized $3 trillion increase in income from government support.

As spending tanked and income jumped in April, Americans stashed away their money. The U.S. personal savings rate jumped to a record 33% in April, according to the U.S. Bureau of Economic Analysis. The savings rate was 12.7% in March when the effects of the coronavirus just started to take hold in the U.S.

The rate, which is the amount Americans save as a percentage of their disposable income, nearly doubled the previous record high of 17.3% in May 1975. April marked the first time the savings rate jumped above 15% since 1975, while it mostly remained in the 5% to 10% range throughout the last decade.

"There’s not much opportunity for many people to go out and spend money," senior fellow at Harvard Kennedy School Megan Greene said. "With shops all closed and everybody locked up, the 'shopportunities' have dried up. That speaks to a kind of demand shock."

Bank of America CEO Brian Moynihan said checking accounts with balances of less than $5,000 had 30% to 40% more money than they did three months ago. Moynihan said data from Bank of America, which counts half of American households as customers, shows credit and debit card spending is down 5% to 10% in May after falling 30% in April.

"You’re starting to see the economy come out of the hole," Moynihan said. "You’re seeing us come out of the depths of where we were in April, and that’s good news."

While most of the country has relaxed stay-at-home orders, many people continue to remain at home. Furthermore, many of the Americans who have been laid off or placed on furlough still have yet to return to work as government assistance will soon begin to dry up.

Despite the stock market's strong rebound from the March low, many Americans haven't benefitted from it. These various factors could cause Americans to continue to be cautious with their spending and lead to an elevated savings rate going forward.

Leftover Crumbs

  • SpaceX completes successful launch. After being delayed last week due to weather, SpaceX launched two NASA astronauts, marking the first NASA launch of its own astronauts in nearly a decade and SpaceX’s first crewed mission. The astronauts will spend a few months aboard the International Space Station before returning to Earth. "This just the beginning; it’s only going to get better," director of NASA’s Kennedy Space Center Bob Cabana said. "We’re at the dawn of a new age and we’re really leading the beginning of the space revolution," NASA deputy administrator Jim Morhard said.

  • Uber unveils new feature. Uber is rolling out a new feature offering rides by the hour in some U.S. cities. The option, which will cost $50 per hour, will enable riders to avoid exposure to multiple drivers and vehicles. Rides by the hour will be available starting tomorrow in Atlanta, Chicago, Washington, Dallas, Houston, Miami, Orlando, Tampa Bay, Philadelphia, Phoenix, Tacoma and Seattle. The feature is already available in some cities in Australia, Africa, Europe and the Middle East.

  • Netflix lands historic movie theater. Netflix has finalized a deal it worked on for more than a year to purchase Hollywood’s Egyptian Theatre for an undisclosed price. Netflix said the theater will remain the home of the American Cinematheque and will use it for special events, screenings and premieres. "We’re honored to partner with the American Cinematheque to preserve the theater’s storied legacy and continue providing remarkable film experiences for audiences," Netflix said.

  • U.S. senators push for another TikTok probe. Four U.S. senators are urging the Federal Trade Commission to look into claims that TikTok violated a consent decree to protect children's privacy. The lawmakers allege TikTok failed to remove videos posted by users under the age of 13 despite agreeing with the FTC in 2019 to do so. TikTok said the company "takes the issue of safety seriously for all our users, and we continue to further strengthen our safeguards and introduce new measures to protect young people on the app."

  • Bezos makes personal investment. Amazon founder and CEO Jeff Bezos has taken part in a $15 million Series A funding for digital freight forwarding and supply chain finance firm Beacon. Beacon acts as a booking agent between exporters and importers while also facilitating trade logistics and finance. Beacon, whose CEO is the former head of software engineering for Amazon’s package and freight transport technology, counts executives from Amazon, Google and Uber as previous investors.